Dive Brief:
- The head of the Tennessee Valley Authority told Reuters that natural gas will likely remain cheap for the next 20 years, putting its generation "well in the money" according to CEO Bill Johnson.
- Johnson said if prices remain under $4/MMBtu through 2030 and under $6/MMBtu after that, they would be "well in the money in the generation space." Prior to a recent spate of low prices, gas averaged about $5.50 over a decade.
- The utility's future strategy leans heavily on natural gas as it moves away from coal plants. In its Integrated Resource Plan filed last year, TVA said it planned to shut 26 of its 59 coal plants by the end of 2016.
Dive Insight:
Cheap gas has assuaged consumers and bedeviled generators for the last two years. Now TVA believes that dynamic could continue for the next two decades.
"We made a bet when we started closing coal plants that gas prices would continue to be low and I think we are surprised at how low they have remained and now expect them to be low for 20 years," Johnson told Reuters. "There is a lot of gas out there."
In the last decade, TVA has gone from burning virtually no gas to almost 700 million cubic feet daily, Johnson said.
TVA last year filed a 20-year Integrated Resource Plan that forecast no new coal or nuclear power plants while relying on natural gas peaker plants and power purchase agreements to supplement the utility's almost 4,000 MW of natural gas capacity. The utility also proposed boosting energy efficiency resources, which it said saved 451 MW of peak demand from 2012 to 2014.
Late last year, Henry Hub gas traded at about half year-before, allowing generators to switch from coal to gas. At about $2.50/MMBtu is generally where the switch to gas becomes attractive, though it is typically a shoulder-month phenomenon. While that is good for power consumers, Moody's Investor Services issued a report in the spring which said consistently low natural gas prices had "devastated" the merchant power sector.
